Social Security isn't designed to entirely replace the average worker's income. In July, the average retired worker's benefit was $1,919.40, which is hardly enough to cover the basics for most retirees who are dealing with rising housing and medical expenses every month. However, if you earn enough during your career, you could receive significantly more from Social Security when you retire. The maximum retirement benefit this year is $4,873 per month, or $58,476 annually.
That amount is comparable to the median income in the United States and will increase over time due to annual cost-of-living adjustments. The requirements to receive the maximum benefit are straightforward but challenging to achieve. Only a small percentage of Americans will qualify. Here’s how you can become one of them. Three factors determine your retirement benefit: your earnings history, when you were born, and when you retire. Your earnings history has the most significant impact on your Social Security benefit.
To qualify for the maximum benefit, you need to consistently earn a high salary throughout your career. The Social Security Administration (SSA) evaluates your entire career, adjusts each year's earnings for inflation, and then selects the 35 highest-earning years. The average of those 35 years is used to calculate your benefit. The SSA then takes your average earnings and uses its benefits formula (based partly on your birth year) to determine your Primary Insurance Amount (PIA). This is the amount you'll receive if you apply for benefits at your full retirement age, which is determined by your birth year.
Those born between 1943 and 1954 reached full retirement age at 66, and the age increases by two months for each year born after 1954, maxing out at 67 for those born in 1960 or later. Another important factor is when you claim benefits. You can start applying at age 62, but you'll receive less than your PIA if you claim before reaching your full retirement age. You can also delay claiming benefits beyond your full retirement age, and the government will increase your benefit for each month you wait up to age 70. For example, those with a full retirement age of 66 could receive a 32% boost to their PIA by waiting until 70 to claim.
However, waiting beyond 70 won't increase your benefit further. To maximize your earnings history, bear in mind that the SSA caps your annual earnings for Social Security tax purposes at a specific limit, annually adjusted for wage inflation. This cap sets the salary bar needed to receive the maximum Social Security benefit. For example, in 2023, the maximum taxable earnings were $160,200, and it's essential for your earnings to consistently meet or exceed the annual limits over a 35-year period to potentially qualify for the maximum benefit in retirement.
It's essential to remember other factors affecting your Social Security benefit: your birth year and when you claim benefits. The $4,873 maximum monthly benefit in 2024 applies to retirees turning 70 this year. Smaller changes in the benefits formula, based on your birth year, also influence this. Additionally, waiting until at least age 70 to claim benefits maximizes your potential monthly benefit. If you are on track to receive the maximum benefit, you likely had a high salary for at least 35 years and might be used to a lifestyle requiring more than $4,873 monthly.
Therefore, building up personal savings to supplement Social Security is crucial, allowing you to retire on your terms and maintain your desired lifestyle. To sum up, while achieving the maximum Social Security benefit requires a high and consistent salary for many years, understanding the various factors—earnings history, birth year, and claiming age—can help you navigate the path to greater financial security in your retirement years.
